Skip to content

ExplainerEducationUnited States3 min read

What the Education Department’s new earnings rule means for colleges and students

Students may lose federal aid if their college programs fail to show graduates earn more than typical high school or bachelor's degree holders.

Share

Topics

Political cartoon showing a courthouse-like college building with a large banner: Grads must earn >$36K/yr; schools have 2 years to comply, while a sad graduate sits nearby with a diploma and a second sign reading 'Degree in hand, still looking for a job paying >$36K'.

WASHINGTON, July 21 (DC Times Online) — In Washington, the Education Department has finalized a rule that ties federal student aid more closely to what college programs pay their graduates.

What changed

The new Student Tuition and Transparency System, or STATS, and Earnings Accountability rule sets a simple test: undergraduate programs must show that their graduates earn more than the typical high school diploma holder, and graduate programs must show earnings above the typical bachelor’s degree holder.

If a program fails that earnings-premium test in two of three consecutive award years, the department says it can lose access to the federal Direct Loan program. If the failures continue for three years, the department says it can move to end Title IV eligibility, including Pell Grant eligibility, for that institution’s low-earning programs.

Why the department says it did this

The department says the rule is meant to line up new and existing accountability systems. It connects the new earnings standard in the Working Families Tax Cuts Act with the department’s Financial Value Transparency and Gainful Employment rules.

According to the department, nearly all programs and sectors will fall under the same transparency and earnings-accountability framework, no matter whether they are public, private nonprofit, for-profit, or offer certificates, bachelor’s degrees or graduate degrees.

What colleges will have to report

The regulations say schools will need to report program-level and some student-level data, including tuition, fees, and financial aid such as grants and scholarships.

The department also says it will use earnings data from at least one federal agency. That data will include students who are working but not enrolled during the year being measured.

That makes the rule different from accountability systems that focus only on enrollment, completion, or test scores. Here, the main question is whether a program leaves graduates with higher earnings than workers with lower levels of education.

Who is exempt

The rule does include some exceptions.

An institution is exempt from automatic loss of Title IV eligibility if it has not participated in the Direct Loan program for the five most recently completed award years. Schools that exclusively serve people with documented disabilities are also exempt.

The department says it will also delay program-eligibility consequences for some programs that prepare students for jobs where most workers receive tipped income. The delay is meant to let the department use earnings data from tax years when the “No Tax on Tips” policy is in effect, starting with the 2026 tax year.

When it takes effect

The department said the final rule will be on public inspection in the Federal Register on June 30 and published on July 1.

NPR reported that the department said it will begin calculating the first year of graduate earnings in early 2027, and that some programs could first be labeled low-earning outcome programs in the 2028-29 financial aid award year.

Under Secretary Nicholas Kent told NPR: “If a program cannot show that it leaves its graduates financially better off than if they had never enrolled, it should not be underwritten by federal taxpayers.”

For students and families, the change could affect which programs stay eligible for federal aid. For colleges, it raises the stakes on how they track costs, report data and show that a degree or certificate leads to stronger earnings.

Share

Topics

Stephanie Ramirez

Stephanie Ramirez is a senior California reporter for Times Media Service, based in Sacramento, California. Ramirez covers California elections and state politics, including government decisions and public policy and the practical effects on residents across the state. Ramirez holds a master's degree in communication with a focus on journalism and grew up in Sacramento, California.

Write to Stephanie